U.S. ENERGY INFORMATION ADMINISTRATION
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
October 20, 1997

Argentina, Australia, and the United Kingdom are among the first -- and most ambitious -- countries to undertake electricity industry reform over the past decade. In all three countries, the privatization of formerly state-owned electricity enterprises has been a central element of the reform efforts. These three countries are also major targets of foreign investment for U.S. electricity companies. The Energy Information Administration has just completed a study of the three nations' reform efforts and published the findings in Electricity Reform Abroad and U.S. Investment.

In all three countries, electricity industry reform efforts have involved an unbundling or separation of electricity assets, the creation of competitive electricity generation pools, regulatory reform, privatization, and foreign investment. In Argentina and the UK, the problem of "stranded" costs (those costs, largely associated with previous investments in nuclear power, that became difficult to recover in a competitive environment) presented additional complications.

Other highlights include the following:

• Argentina, Australia, and the UK were among the most ambitious of nations to undertake electricity reform and privatization. Reform and privatization of electricity in these countries has involved the sale of what were previously entirely state-run and state-owned electricity industries.

• All three countries have opened up their electricity sectors to foreign investors. About half of the UK's electric power industry has now been purchased by U.S. companies. Foreign companies have also become major investors in Australia's electric power industries, particularly in the state of Victoria where U.S.-based companies have acquired interests in all of the state's electricity distribution companies, and most of their generation companies. Companies from the United States have also been the major foreign investors in recently-privatized Argentine electricity assets.

• All three countries reorganized their electricity industries along their constituent parts, creating separate companies to be responsible for electricity generation, transmission, distribution, and marketing.

• A new form of regulatory policy has been adopted for the transmission and distribution portions of the business. All three countries have to one degree or another adopted price-cap regulation in lieu of traditional rate-of-return regulation. The price-cap approach, which sets a maximum price for transmission and distribution services, has now been in effect in the UK for several years. However, although price-cap regulation has produced significant economic efficiencies in the UK's electricity sector, there have been significant public concerns over whether the benefits of these efficiency gains have been equitably distributed.

• Price caps have also been employed in the regulation of electricity marketing in Australia and the UK. However, these price caps are gradually scheduled to disappear, eventually resulting in a fully competitive system. Electricity marketing is a new and growing industry in which customers are being allowed to choose their electricity supplier. Argentina has not separated marketing from distribution services.

• National and regional electricity pools were created in all three countries in order to balance supply and demand. However, in the UK controversy has surrounded the competitiveness of electricity pool operations, largely because of the small number of power generation suppliers participating in the pool. As a result, electricity pools in Australia and Argentina were created with more competitors in the generation sector.

• The issue of how to apportion "stranded" costs (mostly from past investments in nuclear power) was a major policy dilemma in both UK and Argentine electricity reform. In the end, these costs were largely borne by taxpayers and electricity ratepayers in the United Kingdom. To date, Argentina has deferred the problem.

Electricity Reform Abroad and U.S. Investment can be accessed electronically from EIA's World Wide Web Site at http://www.eia.doe.gov/emeu/pgem/electric/contents.html. Copies of the published report will be available in late October from the U.S. Government Printing Office (202) 512-1800 or through EIA's National Energy Information Center (202) 586-8800. Copies will also be available from EIA's Press Contact.

EIA Program Contact: Mark E. Rodekohr, (202) 586-1130

EIA Press Contact: Thomas Welch, 202/586-1178

EIA-97-29

Contact:

National Energy Information Center

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